Comment by vitorgrs
8 days ago
The weighted average of the new U.S. tariffs will be 29% it seems.
Maybe they know the consequences, but to give you a idea... it was 1.5% before. The new ones will be equivalent to Brazilian tariffs in 1989 before opening the economy (31%, data from World Bank).
Now, Brazilian tariffs, which have one if the most closed economies, by weighted average, is 7%.
China, have 2.2%.
The United States will be an autarchy, similar to how LaTam was in the 70's, when tried this exact idea. The tariffs being as high instantly, will impact the economy, later, the country will probably grow, which is what they expect, but this is not a productive grow. Because your new factories now are not competing with external products, so your productivity go down, this means real income will also go down.
So yeah, some people at best (if is not a robot doing the job) will have a job in a factory, but on what he will be able to spend with his wage won't make it worth even for this person.
It's called Import Substitution.
Import Substitution: A Tried and Tested Policy for Failure https://www.kspp.edu.in/blog/import-substitution-a-tried-and...
>Import substitution is a policy by which the state aims to increase the consumption of goods that are made domestically by levying high tariffs on foreign goods. This gives an advantage to the domestic manufacturers as their goods will be cheaper and preferable in the market compared to foreign products. India adopted this model post-independence, and it continued till the 1991 reforms. Due to import substitution, the domestic producers captured the entire Indian market, but there was slow progress in technological advancements, and the quality of Indian products was inferior to the foreign manufactured ones. But after the reforms, the Indian market was opened to everyone, and the consumer got the best value for the price he paid. The Make in India policy of the present government is reminiscent of the pre-1991 inward-looking Indian state.
In the US it will be even worse. The US is already high-tech economy outsourcing low value-adding manufacturing to foreign countries while industries move towards higher value-adding products. After the tariffs, US manufacturing sector will sift to lower value-added, lower complexity products.
Yeah. Specially because the U.S economy is service-focused (and consumption as well).
Like, imagine now that all your computers will be more expensive/worse. This will affect services from like, a law firm - to a tech company. Will make harder for young buy good computers and start to code, etc.
I say this as a Brazilian, to us Brazilians watching, this is like: Why are the U.S repeating the same mistake?
I don't think Americans know this, but here in Brazil, we also have phone, tablet and PC national brands (Positivo¹, Multi², Philco³). National TV brands like Semp, AOC, Mondial. A ton of home appliances brands like Mondial, Philco, Britânia.
But why Americans don't know them? Because they only exists because of the tariffs. So they only exists in Brazil internal market. They are worse than foreign brands, but they exists because it's cheaper to buy a Mondial Kitchen Stand mixer than a Kitchen Aid!
And worse that most of these products are only white-label Chinese products, sold way more expensive than the real chinese ones.
This also create a whole gray market. A lot of people start smuggling products without import tax.
And this only with a 7% average tariff. Not the U.S 29% lol. Brazil with 31%~ prior to the 90's was WAY worse than this. A lot of brands just died when we opened a little the market (Consul, Brastemp, were Brazilian big fridge, Washing machine etc makers, they got bought by Whirlpool in the 90's)
American Brands then will now look for the U.S gov to ask for exceptions too, and this create a lot of corruption. And after you put these tariffs and there's a whole new companies made to internal market, it's almost impossible to remove because of the lobby from these companies (and corruption).
[1] https://loja.meupositivo.com.br/ [2] https://www.multilaser.com.br/ [3] https://www.philco.com.br/
Not for nothing, but Philco is/was an American brand. The Phil is for Philadelphia.
The fact that Americans don't even recognize it anymore may make a better case for the policy than against.
6 replies →
Yeah, but the U.S. govt funds a lot of important research so it may not fall behind technologically unlike India…
Wait, what did you just say? The U.S. government has decimated its research funding?
Oh, well, at least the U.S. has a lot of high quality colleges churning out highly educated Americans, so that still may not be as much of a problem…wait, did you say Americans are increasingly turning away from college due to the high costs and the resultant loans that cannot be terminated even in bankruptcy, because the government has been cutting back significantly on funding education for years now?
Oh well, at least the U.S. is welcoming to immigrants who have founded over 50% of unicorns and usually tend to be the most dynamic and brightest slice of their country’s populations, so it may maintain its technological edge…
Wait what? Oh god.
Yeah, this is one of my biggest issues with this. There is no coherent plan.
1 reply →
It's called US companies now could increase their prices by 30% and just don't worry much, if sales are pretty good already for them.
US short term prices jump +9% according to the KITE model for International Trade Analysis when you take tariffs and counter-tariffs into account.
> The Make in India policy of the present government is reminiscent of the pre-1991 inward-looking Indian state.
Have you seen the 70s or the 80s? I was a child during the 1980s when India was a socialist state. There were very few private enterprises, because there was absolutely zero government support. Taxation peaked at 90% during the early 1970s under Indira Gandhi, who also nationalized many of the largest private companies - because private enterprise was seen as a bad thing. It was also impossible to bring in foreign investment, because that would come with profit motives.
Basically, the comparison you're drawing is not really accurate. The current Make in India plan is very similar to the US bringing in strategic manufacturing back into the US; a plan which has had bipartisan support (for example, the CHIPS Act). It incentivizes businesses (including foreign companies) to set up manufacturing units in India. And is quite the opposite of what was happening during India's socialist era.
>It incentivizes businesses (including foreign companies) to set up manufacturing units in India.
That type of protective policy works for India in incentivizing manufacturers to come build locally because Indian labor is still dirt cheap and the government will work with you to give you what you need without the pesky nimbyism, environmentalism, etc getting in the way of factories. US is not in the same case.
India can grow at 10% but import substitution policy could hurt that, Arvind Panagariya says https://theprint.in/theprint-otc/india-can-grow-at-10-but-im...
1 reply →
Isn’t the US the world’s biggest importer?
>It's called Import Substitution. Import Substitution: A Tried and Tested Policy for Failure
Which worked exceptionally well for China, South Korea, Japan and pretty well for Russia and India.
I think to nurture developing industries, it can be fine, but at some point you have to expose them to competition if you want to exceed what the domestic market can do.
7 replies →
There was a lot of other stuff than just import substitution in the Asian miracle. See https://www.astralcodexten.com/p/book-review-how-asia-works
Quite a coincidence, I was reading this LRB essay [1] this morning by British political philosopher and historian Perry Anderson, analysing the last decade of political and economic (lack of) change in the West. He ended with this paragraph, I had to look up "import substitution" and then in this thread about the tariffs I see it mentioned again, there might be similarities with Trump and Getúlio Vargas. Any people more knowledgable in Brazilian economics want to chime in?
>Does that mean that until a coherent set of economic and political ideas, comparable to Keynesian or Hayekian paradigms of old, has taken shape as an alternative way of running contemporary societies, no serious change in the existing mode of production can be expected? Not necessarily. Outside the core zones of capitalism, at least two alterations of great moment occurred without any systematic doctrine imagining or proposing them in advance. One was the transformation of Brazil with the revolution that brought Getúlio Vargas to power in 1930, when the coffee exports on which its economy relied collapsed in the Slump and recovery was pragmatically stumbled on by import substitution, without the benefit of any advocacy in advance.
[1] https://www.lrb.co.uk/the-paper/v47/n06/perry-anderson/regim...
Honestly wouldn't compare Vargas with Trump here. Trump policies for me seems similar to what the military regime did (1964-1985)
Before Vargas rule (around the 30-40's), Brazil was an agrarian state, basically commanded by coffee barons and so on.
Brazil got the independence in 1822, and abolished the slavery in 1888. During this time, it was reigned by Dom Pedro I and Dom Pedro II. When the empire ended the slavery (one of the latest countries to end), the military and the agrarian folks, did a republic coup. In Brazil we call this republic "Coffee with Milk republic", because it was not a democracy yet (only 4% could vote), and the power was divided by São Paulo (Coffee state) and Minas Gerais (Milk state).
It's a long and complex story, but in short, in 1930, Vargas did what we call "1930 Revolution". It was a dictatorship, he persecuted the Brazilian integralists (fascists) and communists (and banned foreign languages aimed at banning italian/german/japanese speakers etc). The dictatorship ended, he got removed, and later he comes by election, in the first Brazilian proper democracy, with huge people support.
Anyway, besides all that, he basically industrialized the country. Moved the country from an agrarian state to modern industrialized state. But not only because of import substitution, he created like Ministry of Health, Education, all the modern BR state that we know. Penal code, and everything is still from 1940.The industrialization was mainly led by state-owned companies. He created a state owned oil company (Petrobras), created a state owned car company (FNM), steel company (CSN), mining company (Vale), etc.
The development during this time, was basically making the state to be the one that would industrialize the country.
The military dictatorship goal was different, after all, it was a coup against "the communists", with the U.S support at the time. So the industrialization was also led by the private sector, protected by the state with the huge tariffs, and some areas they just banned imports.
Instead of the FNM car company for example, we had then Gurgel, a private company making cars.
Of course, a lot of these companies died when Brazil opened the economy in the 1990s, exactly bcause they were not competitive and wasn't exporting anything anyway.
But one thing that people need to keep in mind always, it's how all of that makes the product expensive. A car in Brazil it's way more expensive than in the U.S and so on.
By the way, what I find most baffling in these discussions is that these calculations are always based only on physical goods, ignoring services, where the US usually has a positive balance - eg, with the EU, the US has a 109B positive balance. In our economies, which are more and more service based, why are services ignored?
Services are ignored by Trump for precisely the reason you mention. The big question is: What will other countries do, like Germany, who tend to export goods to the U.S. but import services. Right now, those are the countries who would rather prevent this thing from escalating, but if escalation it must be and they run out of ammunition within the scope of tariffs on goods, where will they go next?
Tariffs on services may also be less popular with the citizens. It's not obvious that the locally produced fridge is only cheaper because of tariffs. It will be more obvious that everyone non-EU based pays more. It will also be harder to control (how will EU extract tariffs for payments I do to companies with no EU presence?)
But I don't how much about it, maybe these are already solved problems. After all VAT already exists and faces similar challenges.
There are two kinds of "services". You have jobs that are in finance and software, which make good money, and you have jobs in cosmetology and fast food, which have terrible pay. The services that we export are the former.
Your high school grad (or high school dropout) isn't going to get one of those finance or software jobs. But they could get a factory job, if we can get those back.
So the best spin I could put on this is that the emphasis is on physical goods because that's where the people who are hurting in the current economy could find real work.
(Of course, if that were the case, the reasonable thing to do would be to explain that, instead of just acting like services didn't exist as something that is traded.)
[dead]
I was reading an interesting article about tariffs put on foreign garlic or mushrooms can't remember which, rather than buying American companies just paid more for the foreign product and charged higher prices. The American makers of the product didn't sell more the company's just didn't care. Prices will go up Americans will buy less deflation will occur because they have to sell the product.
Likely will result in worse products as well (which is what happens when you remove competition).
LaTam is perfect example on how bad this "wide" protectionism is. There's a ton of economic papers about it.
If you really want protectionism, you could do something more similar to how South Korea did, by choosing specific sectors of economy you want to "protect", to create a "national industry".
Most protectionist industrial policies also exempt imports of machines and other supplies used in factories.
e.g. It makes no sense to put tariffs on machines used in a factory in the USA. AS that would make it more expensive for a factory to operate if they have to import a more expensive machine from Germany. "Buy a machine from the U.S", that would mean a more expensive machine likely, as it only exists because of tariffs.
That basically means you'll have factories on best case scenario, but your cars, your computers, phones, won't be exported.
It's great if you want to be self-sufficient pending a great war. The way things are going, it may be the only thing to justify such blatant self-sabotage, and hence necessary to start one.
5 replies →
Short term consequences are probably different then long term.
In the short term you can't just create a new garlic farm in a day.
In the long term it will still be more expensive (if american garlic was the cheap option they would have used it from the get-go) but there will probably be more adjustments then in the short term
That's part of the reason why these tarrifs are so stupid. There is no warning on the specifics so there isnt time for companies to come up with alternative plans. Given how inconsistent trump is, there is also limited incentive to seek alternative supply chains, because who knows if he will just change his mind again.
>The United States will be an autarchy, similar to how LaTam was in the 70's, when tried this exact idea. The tariffs being as high instantly, will impact the economy, later, the country will probably grow, which is what they expect, but this is not a productive grow. Because your new factories now are not competing with external products, so your productivity go down, this means real income will also go down.
If what you say is true, tarrifs should not exist in any country. And yet, most countries are using tarrifs.
What if a particular country is using dumping and sell at prices so low, it will kill a particular industry? And after they kill it, they start jacking prices at unseen levels and you will have to pay because you don't have a choice?
Most countries do specific tariffs on areas of the economy they want to develop/protect them.
If a country is doing price dumping, there's even legal ways of protecting these sectors, by applying to WTO (but the U.S basically killed the WTO). But even if the U.S don't trust the WTO, they could apply antidumping tariffs to these specific sectors (like the 100% tariffs Biden administration did to EVs).
U.S is not doing this right now, it's protecting "all sectors" of the economy. There's no other reasonable developed country with a 29% tariff.
You can check here: https://data.worldbank.org/indicator/TM.TAX.MRCH.WM.AR.ZS
You'll also notice that most developed or growing economics have low tariffs...
>And yet, most countries are using tarrifs.
On specific industries they want to protect. Not completely across the board.
VAT on imports are across the board, as far as consumer goods go.
8 replies →
This is also the start, other countries will retaliate and the current administration being the current administration will probably respond.
China has many tariffs and non-tariffs restrictions. They are targeted as tariffs tend to be (well...).
For instance, tariffs on cars vary from 25% to 47%. It is quite the status symbol to drive an imported car.
Their policy has always been to develop their own car industry, so foreign manufacturers had to set up factories in the country but even that could not be fully foreign-owned and had to be through a joint-venture with a local manufacturer. I believe Tesla's Gigafactory in Shanghai (opened in 2019) was the first fully foreign-owned car factory they allowed.
It's hard to imagine that there's a way they thought this through in several redundant dimensions.
I understand rationally that there was an economy before the US plunged the world into neoliberalist global free trade in order to build its trade empire, and there will probably be an economy after... but likely not a US trade empire.
But another thing is investment uncertainty. The mechanism by which protectionist tariffs are supposed to work functions over a timespan of a decade or two - foreign imported goods are made more expensive, and so when investors believe they're confident in future tariff conditions, they spend money on domestic factories to produce goods, which have a large setup cost and gradually pay back the difference relative to their good-importer competitors that are paying high tariffs.
If investors can't form a confident prediction on future tariff conditions, investors can't invest; The sheer uncertainty of having a lunatic making up random numbers for every country over lunch and then rolling them out at close of market is instead going to scare them off. Trump has gone back and forth over tariffs with Canada and Mexico over the past couple months, and this doesn't just demonstrate that tariffs can be set extraordinarily high for arbitrary reasons, but that they can be set back to zero for arbitrary reasons. Both of these transitions cause economic ruin for one investor or other; If it's going to happen every few months then nobody is going to build factories or launch import supplychains, at least not for competitive prices. The risk of going bankrupt tomorrow (or in four years when the next administration takes over and abruptly cancels every tariff) on what is basically a coinflip then gets priced into consumer goods for both producers and importers.
The most frustrating of Trump's projects are not just when he shreds your rights or shreds precedent or tries to topple the government, but when he looks favorably at a policy you think is a good idea (like having a manufacturing sector) and chooses to pursue it by running around with a flamethrower setting everything ablaze because on some lever somebody's taught him about the Broken Windows Fallacy wrong, as a joke, and he's upgraded it. During his administration, we circle the wagons and declare that the policy is a terrible idea. Post-Trump, the absolute ruin that the execution of that policy predictably brought will discredit it for the rest of your adult life.